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The horror stories of turnkey real estate investing are abundant, full of shoddy operations with ruthless operators taking your money and never giving you the promised product. It leaves a bad taste in anyone’s mouth for turnkey companies. As a turnkey real estate provider, I've heard it all. But I also know that turnkey companies can be the best solution for a busy professional or young investor interested in real estate with no time or the wealth of knowledge it requires.

But how do you know you’re getting a great deal and an investment that is worth the price tag? Here are a few ways to avoid a terrible turnkey transaction.

1. Boots On The Ground

There is nothing more prudent than meeting the team, seeing the market and, most of all, inspecting the product you’re investing your money in. Although the property you’re interested in may still be in some form of rehab (or renovation may not have been started at all), you can certainly see properties the team has recently finished or is in the process of completing. Even if your property of interest isn’t complete, check out the neighborhood it’s in. Is it the true B-class neighborhood it was said to be? Or is it worse?

Meeting the turnkey team that's in place is just as important. You’re going to be working with them, or at least the property management team, for a long, long time. Make sure it’s a relationship that will stand the test of time.

2. Scope Of Work

For each turnkey investment property you’re interested in, you should request and receive the scope of work. This should detail exactly what is being done to the property in terms of flooring, roof repairs, mechanicals like the water heater and HVAC, and more. If the scope of work isn’t complete yet when you express interest, request a property standards sheet. Each reputable turnkey company should have property standards for each of their rehabs. If the turnkey provider won’t give you either, don’t invest your money there. You will have no way of knowing what their plans are for your property.

3. Due Diligence

Even if you’re new to real estate investing, this is a step that anyone should be able to easily do via the internet. You will want to make sure the numbers work. Is the pro forma they provided accurate? Does it include all your expenses? Some turnkey companies will quote a low tax amount, which may include a homestead and/or owner-occupied exemption. This could greatly affect the amount of taxes owed once those fall off.

What is the rent amount they are projecting? Is it feasible? Check out the neighborhood through rental websites and online listings. There is nothing worse than thinking you’re going to get $1,000 in rent, only to find out that in reality, you’re only going to get $800. That can really break your wallet.

4. Inspections

If you’re not able to perform your own inspection on the property, or don’t have the knowledge to do so, have a third-party inspector perform one. Some turnkey companies will provide their own inspection reports. These are great; however, they could possibly be done in the interest of the turnkey provider if they are done by in-house employees. Be sure the inspection report they provide is performed by a third-party inspector. If it isn’t, purchase your own. It is worth $300 to avoid a $5,000 missed repair.

5. Appraisal

This part gets a bit tricky. If the property rehab is 100% complete, an appraisal should tell you the value of the property. If the property is still in rehab, you could request a subject-to appraisal. The appraisal, and specifically subject-to appraisal, relies completely on the knowledge of the appraiser. If they don’t have any kind of experience in construction or rehab, they may not be able to accurately give you a subject-to appraisal. Granted, if the appraisal comes back $50,000 off, it’s not a property you should invest in.

The best time to get an appraisal is when the rehab is complete. This will provide you the most accurate appraisal value. Be sure to ask before signing a purchase agreement what happens if the appraisal is less than the purchase price. You don’t want to be tied into a contract if the appraisal doesn’t come back as expected.

6. Warranties

Does the turnkey provider offer any warranties? If so, how extensive are they? If a turnkey company doesn’t provide any warranties, this is a red flag. Any reputable turnkey company should back their rehab and their work. If they won’t provide at least a one-year warranty, don’t do business with them. Some even offer multiple-year warranties on large-ticket items like HVAC, water heaters and roofs. The bigger the warranty, the better the deal. It keeps your wallet somewhat protected from those unexpected expenses in the years to come.

7. Others' Opinions

If you can’t get in contact with a current client of the turnkey provider, turn to the internet. A simple Google search on the company should reveal any negative feedback. Large forums like BiggerPockets.com can also be a great source of feedback on many turnkey companies.

Although this isn’t a completely exhaustive list, this should be the minimum required before purchasing a turnkey investment property. A bit more work upfront can result in a better, smarter investment and a future of true cash-flowing wealth.